Report of Malaysia Budget 2011 SWOT

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Malaysia's Budget, 2011

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At the time of its independence in 1957, Malaysia's economy was based on primary exports of agricultural commodities and raw materials such as rice, rubber, palm oil and tin. In a series of five-year plans over the past fifty years, the country has been attempting to climb the value chain, becoming a major exporter of electronics. Malaysia has gradually moved away from its traditional Cold War alliance with Britain and the United States and became a nonaligned nation in the 1970s and 1980s, particularly under the Look East policy of Mohammad Mahathir. In the last thirty years, it has made greater efforts to improve its political and economic ties with China and other neighbors in the region, with less emphasis on the relationship with Britain, the U.S. And Australia (Malaysia 2010, p. 24). Private consumption represents 60% of domestic demand and fixed investment 25% (Malaysia 2010, p. 28). In the recession of 2008-09 the economy shrank by 1.7% and foreign investment fell 81%, which caused the government to enact a number Keynesian stimulus measures and deficit spending (Din Mercan 2010).

Since 1957, the ruling party has been the Barisan Nasional (BN), a coalition led by the United Malays National Organization (UMNO) and its allies the Malaysian Chinese Association (MCA) and Malaysian Indian Congress (MIC), while the opposition coalition is the People's Alliance or PA. The PA performed better than expected in the 2008 elections, winning 78 seats in parliament to the BN's 138, causing the ruling party to lose its two-third's majority for the fist time in history (Malaysia 2010, p. 23). Opposition leaders like Anwar Ibrahim criticized Prime Minister Najib Razak's 2011 Budget as "a naked appeal for votes that failed to deal with the deficit," full of mega-projects designed to appeal to "cronies" of the ruling party. (Din Mercan 2010).

Introduction

Malaysia's 2011 Budget is the first one under the Tenth Malaysia Five-Year Plan, with the intention of making the country a fully developed nation by 2020. Total expenditures were RM 212 billion, 162.8 billion for operating expenses and 49.2 billion for development. Because of the global recession in 2008-10, the Ninth Plan only achieved an average growth rate of 4.2% per year, which was at least 2% below expectations (Malaysia 2010, p. 33). Over 25% of the government's budget is for education in order to lay the foundations of a 21st Century economy based on "innovation, creativity, and high value-added activities" that will create "a knowledge-based workforce" by 2020 (Malaysia 2010, p. 12). Malaysia has a state-owned oil company, Petronas, and 21 billion barrels of offshore reserves, mostly in the Sabah and Sarawak territories on Borneo, and the Budget provides for more funds to develop these resources. The Ministry of Trade and Industry is "looking at additional sectors to be liberalized in line with the ASEAN Free Trade Area." For the Malaysian government, one very important economic goal is also to raise the national income per capita from $8,000 to $16,000 per year by 2020, with a growth rate of at least 6% per year, and "central to the model is the human capital strategy" (Malaysia 2010, p. 20). Malaysia's economy is one of "the most highly subsidized" in the world relative to population, at $21.4 billion per year, and because of the 1997-98 and 2008-10 crises, the government "has taken a more dominant role" in the economy (Malaysia 2010, p. 21). In 2008-09, the fiscal stimulus was 10% of GDP which "helped stave a fall in domestic demand," and the economy has rebounded better than those of most Western nations.

By 2010, the economy was again growing at 6-7% per year thanks to the stimulus and a recovery in exports of electronics and commodities. It had a "strong performance during the global downturn," not least because its banks had been insulated from speculative and short-term foreign debts since the 1997-98 crash (Malaysia 2010, p. 28). The brief but severe recession of 2008-09 was caused by "a sudden collapse of the demand among U.S. consumers," which is still Malaysia's third-largest export market. In the 2009 stimulus package, 30% of the money went to Khazanah Holdings, the state-owned investor in Malaysian industries, while 40% went to private enterprises. In addition, homeowners received a $3,000 tax deduction on their mortgages for three years to "support domestic demand" (Malaysia 2010, p. 29). At present, though, the private sector is insisting that the government "step back" as "the principle engine of growth," and the state has agreed that Malaysia will not achieve developed status by 2020 without the private sector (Malaysia 2010, p.

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30). The success of this plan depends primarily on "the ability of the government to convince the private sector in Malaysia and abroad that it means business in opening markets and equity arrangements" (Malaysia 2010, p. 41).

Najib told parliament that the global economic environment would remain difficult for Malaysia and that in the long-term it would have to find new types of high-value exports and engines of domestic economic growth like education, health care, tourism and high technology. In short, it would have to move in the direction of a postmodern, postindustrial economy or risk stagnation, and these new investments would have to be made by the private sector. He noted that "the trend of external trade is increasingly challenging, while there is heightened competition to attract foreign investment." Thailand, Singapore, Vietnam and Indonesia are all attracting higher levels of Foreign Direct Investment, while private investment in Malaysia grew only 2% in 2006-10. Foreign investors were "frustrated with the lack of progress in reforms of Malaysia's subsidies and its race-based policies," while Professor James Chin of Monash University found that foreign investors thought that "the budget doesn't give them anything in terms of real money" (Din Mercan 2010).

Analysis & Review of 2011 Budget

Critics from the PA opposition, usually writing from a neoliberal perspective, panned the 2011 budget as continued Keynesianism, deficit spending and central planning despite the promises in the Tenth Malaysia Plan to reduce deficits and allowing the private sector to lead the economy. Dr. Ahmad Dzulkerfly in The Malaysian Insider wrote that "the budget was everything except 'fiscally prudent'" considering that the country had already run deficits since the 1998 crisis. Prime Minister Najib's promise to lower the deficit to 5.4% of GDP from 5.6% in 2010 was "still suspect," as were the actual deficit figures. Najib was a very skilled politician whose Budget was "crafted to appease as many a constituency as possible" and had "goodies" for everyone including women, youth, students, teachers, imams and NGOs. This is his strong "penchant" as a political leader, but in this Budget there was hardly any mention of government transformation, economic transformation of the New Economic Model so frequently touted in the Tenth Plan. There were billions for new construction projects such as highways, mass transit, resorts, and the 100-story Warsian Merdeka Tower, but no real commitment "to drastically restructure the economy by revamping efficiency, productivity and innovation." Although the Budget included some "modest incentives" in Islamic banking, green technology and oil and gas production, it was still "centrally-planned pump-priming" of a classically Keynesian and socialist variety. Nor did Najib make any real headway on liberalization or opening Malaysia to more foreign investment. Meanwhile, the private capital markets were "weary of too many federally-guaranteed semi-government entities raising money from the market." In Dzulkerfly's opinion, this Budget still reflected the country's "middle-income trap" and offered only continued economic and social stagnation (Dzulkerfly 2010).

Greg Lopez commented in New Mandala that Najib's 2011 Budget was proof that the UMNO found it impossible to break away from its traditional policies and ideology. Even though his party lost ground in the 2008 elections and promised to "transform the economy," Najib still went back to "what the UMNO knows best…money for the big boys, and then some for the Rakyat (common people)." Although Najib called it a Citizen's Budget and claimed that he had incorporated many suggestions from the ordinary voters on his 1 Malaysia website, Dr. Lim Teck Ghee stated that "we are returning to the era of mega high-status, expensive projects which will provide little value-added to the Malaysian economy." Najib also asserted that he took that 1 Malaysia promise of a new national identity beyond that of tribe or ethnicity seriously, but in private warned that if the UMNO were defeated then "Malays would lose their power." Indeed, 1 Malaysia was "rubbished by his administration and his party," while Mahathir had always denounced it and asserted that Chinese and Indians still "identified with their countries of origin": rather than Malaysia. In the 2011 Budget, Najib was already positioning his party for the next general election, by "buying off the elite" and using nationalism and supremacist ideas to appeal to the Malay masses (Lopez 2010).

In contrast to the supporters of the opposition party,.....

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